Q2 2021 Avaya Holdings Corp Earnings Call
[music].
Greetings and welcome to advice physical 21 second quarter and best to call.
At this time, all participants are and to listen only mode. A question and that's a sectional and follow the phone and presentation and you want to require operating or assistance during the conference and Crystal.
I was so keep at.
And this conference is being recorded I would now and like to turn the conference over to your host Mister Michael Mccarthy, Vice President and that's relations. Thank you and May begin.
Thank you welcome to a bias per school 2021 second quarter.
Jim share Gulf War, President and CEO and care Mcgrath, our executive Vice President and cheerful, we'll leave this morning and she.
And you should prepared remarks before taking your questions.
Joining him this morning, and will be Anthony Portola, Chief product Officer, Steven Spears, Chief revenue walls, and Dennis Kozak, Senior Vice President Channel and.
Assistant with social distancing mandates each of us on this morning's call are simple from a remote location.
The earnings release, and industrial slides, which now includes highlights from our ESG initiatives and performance referenced on this morning to call for accessible on the industrial age of our website cause well 88 and K.
Filed today with the S E C.
And you should eight and your understanding the bias financial results all financial metrics referenced on this call are non-GAAP with the exception of revenue.
Have included a reconciliation of such and.
Measures to get and the earnings release and Investor slides, we may make forward looking statements that are based on current expectations forecasts and assumptions, which remains subject to risks and uncertainties that could cause actual results to differ materially in particular and the global economy continues to be impacted by COVID-19, and the extent of its continue to impact on our <unk>.
Business will depend on a number of factors that include but may not be limited severity and duration as well as actions taken and we're not taken by governments businesses and consumers and response to the pandemic all of which continue to evolve and remain uncertain at this time.
Information about risks and uncertainties may be found and our most recent filings with the SEC, including our form 10-K, and subsequent form 10-Q reports and.
And to devise policy not to reiterate guidance and we undertake no obligation to update or revise forward looking statements and event facts or circumstances change, except as otherwise required by law I will now turn the call over to Jim.
Thanks, Mike.
Good morning, everyone and thank you for joining the call today.
I'm pleased to share that avaya delivered a standout cue to.
Executing well across multiple dimensions of our business and I couldn't be prouder of what our global team accomplish by posting revenue and EBIT results.
And as a result, we are engaging and significantly more in depth and strategic conversations with enterprise customers, which is driving growth and larger and longer term contract commitments.
More importantly, our result represents a significant work undertaken and the strategic investments we've been making over the last several years to reshape our portfolio to be a leader and enterprise communications and collaboration solutions.
Now I'll run through some key performance highlights that underscore we have the right approach and are on the right track for continued success.
We see continued momentum and a number of areas as we execute the three pillar strategy, we communicated over a year ago.
First to move to a recurring revenue business model driven by cloud and subscription.
And which we signed more than 100 deals with a tgv of over $1 million 16 of these fields were greater than $5 million and 78th grade and $10 million with one deal over $25 million.
And the competitive front, we displace a significant number of competitors for the third consecutive quarter, where we signed approximately 1500 new logos.
On the profitability front adjusted EBITDA came in at $177 million or 24% of revenue, which is up 220 basis points year over year.
The playbook for our industry, it's not a secret.
The key is therefore, how you execute.
Our team is doing a great job.
And it's the combination of these results and our visibility into the second half of FY 21 that gives us the confidence to again raise our guidance for revenue.
Caps and EBITDA for the fiscal year.
And we will provide additional detail shortly.
We've had many notable accomplishments over the last quarter too many to go through on this call. So I'll just touch and a few that demonstrate how our investments are accelerating innovation, enhancing our competitiveness and delivering value to our customers.
First I couldn't be any more pleased with the progress we've made as we continue to expand our contact centre solutions.
As a measure of our progress and queue to see Cassie count was up significantly from the prior quarter and the pipeline of opportunities continues to growth.
<unk> is now available on nearly 40 countries, we continue to add additional capabilities to the platform and recently announced full Omnichannel Patrick group based agent matching agent personalization and predictive analytics.
And <unk>, a global provider of CRM and Bto services selected R. C cash can manage customer interactions for their customer good Rx.
Another customer all one health needed a communications platform that would deliver scalability and reliability through the next stage of their exciting plans day.
Chose device C cash to help enable the diverse workforce, including in house doctors nurses clinical staff health counselors and call centre agents.
Case experience, while also giving them the flexibility and migrate their business communication systems to our cloud.
At a pace that makes sense for their business.
Momentum for spaces continues to grow and we are winning a significant number of new customers.
And doing so at scale.
One such example of a recent win.
Was that same Saint Denis post of the 2024 Olympics.
Selected avaya spaces as their work from anywhere collaboration solution from approximately 8000 users. After a critical review of more than 10 alternative solutions.
They awarded the gold medal.
Spaces, because its feature rich and offer superior security scalability and ease of use.
Moving to Avaya cloud office.
We are seeing positive growth and a number of areas and we're also pleased to see the increased pull through of see cash and see past, resulting in deals with a larger <unk> for avaya.
The solution is now available in 13 countries and we are rapidly.
Number of agents and partners authorized to sell.
Not only are they authorize but during the quarter the number of agents selling grew by 40% from the prior quarter.
While a significant value proposition of Avaya cloud office has the ability for us to mobilize and convert our UC base over 70% of our wins were brand new customers.
We also saw significant customer growth overall, increasing our total customer count by 50% and Q2.
Moving on to subscription.
We see strength across our <unk> and continue to transition our base of loyal customers on traditional software contracts to this flexible consumption model.
Subscription and allows customers to consume our technology, how they want.
And for the cloud off cloud or a hybrid approach.
Our international rollout is also progressing well.
And the number of partners selling subscription is increasing steadily I cannot be more delighted with the progress.
While subscription performance is strong across all segments of our business, we are experiencing significant demand and the contact center.
Subscription is also quickly evolved into a new customer acquisition engine with nearly 100 deals coming from new logos.
Whereas just a year ago it was zero.
The most important aspect of this deliberate transition of our base to subscription is the increase we are seeing and recurring revenue.
Which came in at a record 66% this quarter, whereas just two years ago. It was under 60%.
<unk> revenue as we know is significantly more predictable and de risks us away from our past more volatile license based model.
Making this transition successfully as an exceptional accomplishment and the software industry.
Private cloud is a key element of our subscription offering and I want to specifically call out two notable private cloud deals.
The first is a new five year agreement with Qatar Airways, serving customers and over 70 countries and 12 different languages.
Deploying our advanced digital engagement global workforce optimization and automation.
And preparation for the FIFA World Cup and 2022, the second is with clarity and we're a leader in advanced energy solutions <unk> deploy 5000 unified communication users across 22 countries on our private cloud platform to support their global team.
Demand for private cloud deals remain tied with a very strong pipeline coming into the second half of the fiscal year.
As we continue to advance our strategic initiatives and execute on our operational targets consistent with what we told you and our last earnings call. We came into the year with strong momentum. We also knew that the <unk> zone, and new technologies and capabilities with significant growth vectors, which start to take hold and FY 'twenty one.
And beyond.
And they had and.
In short based on our performance I am confident and very excited about the future potential for new solutions, which are opening a larger and growing Tam for avaya.
First of all we are still in the early innings, we remain deliberate and how we build out these new platforms and we're listening closely to our customers to make sure. We're developing the capabilities to best address their needs, particularly as a distributed work environment continues to evolve.
Before I turn it over to Karen it's important to recognize and thank the entire avaya team.
And strong for their continued dedication and flawless execution throughout the quarter and most importantly for their focus on delivering value to our customers that is truly and an outstanding team.
With that I'll hand, the call over to Karen.
Thank you Jim good morning, everyone.
As a reminder, all figures mentioned on this call are as reported unless otherwise indicated and constant currency.
For the second quarter of our fiscal 2021 revenue was $738 million.
And this represents year on year growth of 8% as reported or 7% and constant currency over the $682 million and the year ago period and <unk>.
Pairs to $743 million and Q1 of fiscal 2021.
Year over year growth continues to be driven primarily by a rapid migration to the software subscription model aimed and increasing contribution from Avaya and one cloud.
Additionally, this quarter, we saw a year to year and sequential boost from professional services and.
Key deliverables were accelerated and peers.
Good Day administration project in this quarter.
As Jim highlighted we continue to deliver on our aggressive or commitments in Q2.
Our one cloud <unk> metric exited the quarter at $344 million.
Which represents 31% of sequential growth.
Avaya one cloud offerings are driving this day, our momentum with second quarter growth continuing to be powered by subscription bookings and an increasing contribution from avaya, one cloud public and private.
Contact Center was again about 60% of total one cloud <unk>.
In line with Avaya is core strength and the enterprise segment customers paying greater than $1 million annually accounted for over 60% of total <unk>.
As a reminder, we established caps to give investors insight into our successful delivery of Avaya as highly differentiated software solutions in the cloud consumption models that make the most sense for our customers.
This quarter revenue contribution from caps represented 40% of total revenue up from 34% and Q1.
For our second fiscal quarter recurring revenue accounted for two thirds of our total revenue.
Meanwhile, software and services represented 90% of total revenue.
Through focused investments and deliberate execution of.
<unk> has clearly evolved into a software and services business and away from a hardware centric model.
Non-GAAP gross margin was 61, 8% and the second quarter compared to 61, 1% and the year ago period and flat sequentially.
Product margins were down modestly while services margins improved during the quarter, reflecting the shift from perpetual licenses to subscription and public cloud offerings.
Overall, our services margin improvement is consistent with our structural shift towards delivering our solutions and cloud consumption models available to customers through our Avaya one cloud portfolio.
Turning to total profitability margin and cash flow metrics for the quarter.
Second quarter non-GAAP operating income was $148 million.
Representing a non-GAAP operating margin of 21% up 180 basis points year on year.
Adjusted EBITDA was $177 million.
Representing an adjusted EBITDA margin of 24% up 220 basis points year on year.
This reflects our operational efficiency, even as we are making the vital investments necessary to scale, our cloud capabilities, including our channel partner programs and global expansion.
Bolstering, our IRR and momentum.
Non-GAAP EPS was <unk> 74, and the second quarter compared to 57, and the year ago period and 90 sequentially.
The strong year over year growth and this metric is the result of two factors increase.
Increased profit and the benefits from the significant number of shares repurchased and the first half of fiscal 2020.
Now turning to cash flow, we can see we consumed $24 million and cash flow from operations were negative 3% of total revenue.
Our cash flow was primarily impacted by two in quarter variables.
The first was the timing of interest payments on our senior secured notes, which are paid semi annually.
<unk> of $29 million quarter over quarter increase and interest payments.
The second was our pension contribution payments that were $26 million higher than the prior quarter.
Due to the passage of the American Route Rescue Plant Act. The company does not expect to make any additional contributions to our U S pension plans for the remainder of fiscal 2021.
We ended the quarter with a cash balance of $593 million.
This reflects the $100 million debt Paydown and we completed in February along with a favorable refinancing of $743 million of term loans that previously matured in 2024.
In addition to extending the maturity to December 2027, we reduced the interest rate by 25 basis points.
Success of our capital allocation initiatives across this past year is a proof point of the market and the industry confidence and avaya and execution and strategy.
Now turning to guidance for <unk>, 'twenty, one and full year fiscal 'twenty one.
Please note that all year on year revenue changes are expressed on a constant currency basis, and all revenue amounts reflect rates as of April 32021.
For the third quarter of our fiscal year 2021, we anticipate revenues of $720 million to $735 million representing growth of 1% year over year at the midpoint.
We expect non-GAAP operating margin for the third quarter to be between approximately 19% and 20% and.
And our adjusted EBITDA to be between 160, and $170 million or approximately 23% of revenue.
We expect non-GAAP EPS to be between 66, and <unk> 73 for the quarter.
This compares to non-GAAP EPS of <unk>, 95, and the year ago period.
Quarter over quarter progression of EPS reflects dilutive impacts that I will cover in more detail when discussing the full year guidance.
In terms of our full year fiscal 2021 revenue guidance, we are increasing our revenue guidance to be between 2.920 and $295 5 billion.
This represents growth of 2% to 3% at current FX rates and represents approximately 1% revenue growth at the midpoint as measured in constant currency.
We are tightening our caps revenue guidance range by raising the low and from 35% to 37% of the full year revenue.
This now and lifts our guidance range to 37% to 40% for the full fiscal year, representing over 50% growth year over year.
Turning to one cloud <unk>, we continue to see very strong momentum and are increasing our full year guidance. We now expect to exit the current fiscal year between 450 and $460 million.
At the midpoint. This reflects an upward revision to guidance of an increase of approximately $35 million from the prior guided targets and demonstrates over 130% year over year growth.
We expect non-GAAP operating margin to be between approximately 20% and 21%.
Additionally, we are raising the low end of our adjusted EBITDA guidance and tightening the range to $690 million to $720 million or approximately 24% of revenue at the midpoint of this range demonstrating <unk> ability to deliver revenue growth while maintaining profitability.
Turning to shares outstanding guidance and earnings per share, we expect our weighted average shares to now be between approximately 80 789 million shares outstanding at fiscal 2021 year and.
This increase and outstanding share count primarily reflects the appreciation of Avaya stock price.
Hosting and dilutive impacts from previously issued convertible notes warrants and stock awards.
Due to this share count increase we expect non-GAAP EPS for the fiscal year to be between $3 <unk> and.
And $3 20.
At the midpoint. This reflects mid single digit percentage year over year growth.
In terms of cash flow from operations for fiscal year 2021, we are maintaining our guidance of between 3% and 4% of full year revenue.
With that I'd now like to turn the call back to Jim Jim.
Thank you Karen.
Let me offer a couple of closing thoughts.
As we all try to navigate this past year the best we can.
And the World has fundamentally changed and we will not be going back to the way we used to work.
Instead, we are moving forward.
And to a new work environment and now more than ever our customers are relying on avaya solutions and expertise to help them navigate through unchartered waters.
Our leadership position and communication and collaboration has never been stronger.
Our innovation pipeline has never been as robust or.
Our model is robust and sustainable and.
And we are benefiting from the disciplined execution that avaya is known for and for our focus on profitable growth.
We are well positioned to continue our success and I am confident of where we are heading and that demand will remain strong for the foreseeable future.
With that we will now open for questions.
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Monday, when asking a question.
Please limit yourself to one main question and one follow up one moment please as before.
Our first question comes from the line of George Sutton with Craig Hallum. Please proceed with your question.
Thank you Mike congratulations on getting the gold medal.
So.
I wanted to just walk through something relative to enterprise demand.
And we sit on a lot of these calls and hear about SMB and mid market you, obviously are focusing and.
These cases on larger enterprises and have a unique ability to give them either a private or public cloud option can you just give us a sense of the migration of those larger enterprise and the cloud because I think thats whats behind.
A lot of these results.
Yes, Hey, George Jim Thank you very much.
So a couple of things number one is you take a look at our large enterprises and obviously we have.
We have the capability to deliver the solutions across a breadth of technology.
And obviously, our subscription, which we launched and the market about six quarters ago.
The demand and the funnel and fairness has never been stronger and.
And we're finding that our large enterprise customers are looking for sort of the same flexibility if you will from a.
Recurring revenue and <unk>.
And consumption based model and really moving away from.
Having this burden and having all of these licenses, especially and the new work environment and where many of their and our employees are working from home and our philosophy has always been net we're going to honor.
How our customers really want to have their solution and so whether.
Whether it's the cloud off cloud or hybrid where and the business to support our customers and with the pandemic.
Accelerated.
Growth of digitalization cloud.
And again the need for our customers to really have a flexible consumption model and we're going to remain committed to provide the solutions that our customers choose so we're seeing and huge increase and subscription.
Yeah.
And we continue to have over 100 large deals a quarter.
Significant dollars with 16, B and greater than 5 million, so and Oh by the way is attraction and that we're getting against start competition and we're finding when you get into and large contact centres greater than 500.
And that's where we have a significant advantage against our our competition and that's again true points to our services organization proof points to the expertise that we bring to the market each and every day, so a bit wrong Linda book.
Quite excited with the results that we've had to date and.
As we look at our backlog and pipeline.
We're very excited about the opportunity and from.
So if I could just focus my follow up on the ACO offering and speaking to your partner.
The suggestion has been a surprising level of new wins versus just migration wins could you just address that.
Yeah.
It's proving out to the sort of the premise by which we we did the relationship and.
Partnership was doing central.
And that was the fact that and you thought about Avaya was an old legacy company that was trying to compete and the world of hardware or at the you see part of the new cash part of the market and shifted to cloud and we knew we had significant opportunity and that's why we partnered with range. So not only solution provide a solution to our installed base.
But also be able to compete and win in the market with really with our brand or expertise overall capabilities and in fact, it's coming true and.
And we're really excited and and I also think.
It shows the relationship on just how committed we are to our channel and through our partner community there and extension of us.
Combination of Us and I've said, many times that when we go to market with our partners, we when there's no better for us and.
With the fact of our private cloud solutions, both on the <unk> and the <unk> side.
The traction we're seeing with our collaboration solution with <unk>.
And with spaces couple all that with <unk> and then look we're really differentiating ourselves at the higher end and the more complex enterprise enterprise customers and those are long lasting customers.
We believe and we see are moving and we're helping them move to the new world. So.
We're pretty excited about the opportunities.
And we've seen in front of us So I will turn it over to Karen.
Sure. Thanks, Jim So Raimo, yes, I think our Q2 surprised us a bit on the upside on the cash.
Some of that didn't have to do with some of our work with some of our alliance partners.
Is it related to the social security deal.
I would see probably within a point or two us continuing to see numbers like this.
We go out into the second half of the year as well and that's what gave us comfort and taking the bottom end of our.
And our range up from 35% up to 37%.
As we said before not all.
Sure.
Alliance partners.
<unk> per se and some of it is a bit of a point and time in terms of just some of the relationships that we have with some of our third parties, but I would think that we should be pretty close to these numbers as we look in Q3 and Q4.
Okay. Thank you congrats.
Thanks, Ron.
Our next question comes from the line of semi challenging with Jpmorgan. Please proceed with your question.
Hi, Thanks for taking the question and hope you can hear me all right.
And I guess, what I wanted to ask about is does this overall impression and especially as we lap.
Pandemic yield net last year and was characterized by a lot of interfaces and increasing capacity and it came to.
Communication channel collaboration salute.
Solutions and this feel youre going to see a little slowdown in momentum and space just in terms of capacity and.
Additional license additions and this year. It has been more featured by portfolio attraction and new.
Wins, so just wanted to see if you can compare and contrast, there and kind of be more.
This year versus last year.
And actually seeing that on the ground and.
I had a follow up thank you.
And I can hear you perfectly and thanks, that's a great question. So first let me start by.
We really think and the avaya employees and <unk>.
And inspire us each and every day with their resiliency and.
And I couldn't be more proud of the dedication that they put forth.
Working with our customers.
Second to none.
As you pointed out.
There already have been many long lasting structural changes that I see and theyre going to impact the communication and collaboration space.
And.
And the work from anywhere.
The direct to consumer commerce contact less experiences so on and so forth.
The interesting thing about Avaya is before the pandemic.
I would say that these were emerging trends, but it wasn't an emerging trend with inside the company, we have repositioned our portfolio about three years ago and order to capitalize on what we believe was an emerging trend that was just accelerated and.
And we're in full swing and I think thats evidenced by the significant growth and subscription I think it's evidenced by this.
And growth and <unk> and as evidenced by our bookings were up again, 14% is a leading indicator as evidenced by.
And our TCP continues to remain above two 2 billion. So we are well poised to take advantage of the commercial opportunity.
That's a new world will unlock by the structural changes and we're already at the leading edge of developing and delivering these technologies for our customers' digital transformation and to degree that we continue and I'm really pleased with our progress to bring new capabilities into our solutions around AI collaboration cloud so.
And so forth coupling with our solutions.
I think.
And also.
We have a <unk>.
Number obviously at the largest of large most complex enterprises and as you can imagine there is a pipeline and a timeframe by which we're working with these folks and in order to deliver these solutions. So it's not something that is what I'll call point operated it takes a significant amount of professional services work and.
And and pipeline work, so we do see.
And that we are well positioned to handle whatever comes next and the world and hopefully getting back to some sense of normalcy.
Okay, and if I can just follow up on to see if they can get any.
Inside.
And some ballpark.
And though when you're guiding could be one priority around and metric for this for you and how does that.
And to pick up between seek feedback and Youll speak us and Houston, and particularly it looks kind of from three years out.
And that mix change conditions, and glad yesterday and just given the different.
Timeline and some of the different trajectory of growth for the three different platforms.
And Karen you want to.
Sure.
And where are you know you're talking about getting to a billion dollars. A couple of years that would be roughly a third of the company's total revenues, so but I'm wondering.
You know it could could that number could could that eventually reach 50 per cent of total revenue some day or put another way and I'm not looking for guidance, but just given your customer set.
Is there a natural structural ceiling on a R. R that we should be aware of and then I have a follow up.
Yeah, Hey, Lance gym and thanks.
As as I mentioned are are.
Let me see.
Significant opportunity and in front of us.
I think more importantly, it's representative of the diversity of our one cloud portfolio and whether we go at the vertical customer segment different deployment models.
I think it really highlights and shows the breadth and depth of our overall revenue model transformation. So I think it's really important.
Secondly.
I think that's probably the most important about the sustainability as our pipeline of innovation and solutions is extremely strong.
And these capabilities are relevant per today's marketplace.
And relevance is obviously extremely important so when you think <unk> you think <unk>, you think AIG capabilities digital spaces.
Think of capabilities like public private hybrid.
You think about the ecosystem partners that we have around the globe you think of hundreds of thousands of customers.
It presents us.
With a real opportunity and I believe the presents us with significant upside and so.
Forgetting the number per minute.
Sustainable I think so for sure and I think it's evidenced by the numbers, we've delivered and the fact that we've increased our guidance now three consecutive quarters. So yeah I mean.
And and I'm thinking of the net Anthony add a little a little color today.
We just we just take it from our numbers perspective in terms of the opportunity is a couple of fundamentals that have taken place that you can just articulate and associates.
Yes slides customer zone are accelerating you just take a look at the safety transformation, that's that's going on.
Definitely a.
A public cloud push alright, cloud pushed whether it's public or private the and and.
And if you really think about the context and the space alone and some 15 and see.
And that particular segment, we happen to have the.
Six moving of those particular states and there's only just begun that transformation to the public or the private cloud and that represents significant IRR that seats within just 6 million and seek base and we think over the coming years that that is.
If we slip for every one of those but for the sake and and manage and transition those customers to the cloud effectively transition to a very large ira.
Opportunity that we have just been a customer both so yeah, we think that there's definitely late.
Okay and then my my follow up would be just within this one cloud <unk> channel what did the underlying price trends or perhaps underlying volume trends look like and and trying to get a sense for how this conversion to arif's could potentially impact.
And the companies longer term growth rate, obviously are we get the fact that the visibility alone is worth something but I'm just trying to think a little bit more about within that channel does that do anything to the longer term, 2% to 4% growth rate that you've sort of talked about and the past.
Sure. So there's this has cured.
And we should before why and.
And we really like.
Where we really like to focus on error is just and the multiplicity of different revenue producing so when we think about the migration all of these migrations direction migrations plus right. So what is their assuring up the base and we're actually seeing additional add ons from our customer is the and did some level of crowd functionality.
Into the into the subscription as well <unk>.
If you start to do the whole screen and.
And you start to add on all of the different AI capabilities, we see a real opportunity for significant or per expansion in that regards just cost per comes along with that as well, but certainly topside revenue. So.
And longer term as we continue to move more of the customers away from the traditional premise based into a hosted based whether that's cloud and private or public.
Yes, we think there's an opportunity to go out and grow that revenue beyond zinc.
And.
And our next question.
From from the lineup Catherine from it will probably is please proceed with your question.
And thank you for taking my question. Anthony This is per year could you put a finer point on that $6 million feed opportunity what type of go to market motions are you putting.
To attract fees and transition net the over.
And I'm trying to understand a large enterprise versus maybe something through a master day, Jan and how you're differentiating and defeat size et cetera. Thank you.
Sure, Okay and thanks for the question Firstly, just a correction from $6 million with $6 million sake, alright and.
Yeah, maybe dislike.
Two things have been hostility and say opportunity therefore, all tan and the contacts and a space 6 million of those or thereabouts.
And there is being customer base by the definition of the Cc realm of the key groups that would almost all and out into the large enterprise and the logical price scale and those who have been deposits usually research director three are part and the community and our partner ecosystems and go to market model Hasnt funding.
Mentally changed we have added and a lot of master agents, and and and resell us to the portfolio as opposed as as a function of book Stevens team and what we've been doing and the.
And the public cloud realm, and this Saturday and starting to Python more of a role and about scale up just like our existing ratio and unity and also.
Tons of scaled down and we see scaling down and allows us to expand our market opportunity. We see those master writings ratio is potentially selling into the logic customers and we're seeing some of those onesie twosies right now, but we see that as they learn the larger and larger size in the process held off and expand into that.
Segment, if you broke down really the motion and that's going on.
And when you take and the land adopt expand and renew and.
As we talk about it.
6 million represent customers that are already landed.
So they already landed.
The COVID-19 landscape is going out and trying to be the al in the leg and the later model. We've got the outlet with those 6 million and see what we're doing with the right and that is.
Having them adopt new.
New technologies expand and those technologies and into the new cycle, and we just getting better and better that all the time and therefore I took bill and when I spoke about that title opportunities adjusted net from Texas, but sorry for the long and stuff.
No that would be getting and thanks for the cats I don't know what I was thinking of.
Yeah.
Oh no problem.
And our next question comes from the line on Ron Hall, and Goldman Sachs. Please share with your question.
Hi, This is about a day and put a rug tax and pick migration congrats on and a quarter I don't know King Dot net.
So caps and only portion and jumped the target different from petzoldt. The from last quarter. Now now you mentioned, the Saskatchewan and Kate and this put a day quanta store and buy tree cash and Lance partner extent, but what can you talk about.
And particularly the kinetic b.
Lots and install base.
I know you've expanded offering to pack and countries now maybe issue has also doing some on this caps and I do think the product is still.
And and these changes any kind of helpful.
Sure. So this is kiera and let me start off and and the less finish the job good but clearly ACO was a critical point park and component of our alliance partner relationship.
Has been and this year it's been.
A big Boutris and this metric and a year over year basis, especially since we took anti portion of it and point in time. So Dennis maybe you could provide some color and just will receive in terms of opportunities and.
Yeah, sure sure Kid and care and thank you.
So, yes, certainly but product continues to make sure it's a bit and market now for about 14 months since last March and each successive release continues to build on really and two dimensions. The price dimension Israeli around the platform and innovation ear brings central talk about a lot of the capabilities doesn't bring to the platform quarter over quarter and then the second.
Dimension, which is extremely important to avaya as as we bring nearby and feature set to it. So it continues this last quarter, we had a new release that brought a number of key capabilities and our existing base are very interested in seeing one partner gone on record as clothing, it's the best PBX and the best of cloud and one package and that really creates a very.
Competitive differentiator for us for a variety of reasons not just for migrating around base, but also for attracting new logos and are you.
Using and existing premise solution from one of our competitors.
Net.
Along the same lines per second.
A little bit on the pilot clothes momentum, especially last two o'clock and let me strong and you mentioned from Losties accounts from from capabilities and and maybe features cents.
Differentiated what's this competition could expand on this a little bit.
Sure. It's Anthony here. So firstly I think you'll see we know we are seeing the popularity of a private cloud solution, because we basically redefined evolved private cloud so large enterprises want the flexibility of the public cloud.
Not the old full of what's being delivered by a private plan. So we give them and the benefit of having the agility and flexibility is a public flab deployment, but the flexibility of customization on that public cloud as well as the ability for data to be able to and.
At the age we talked about how something's deployed whether it's public or private et cetera, but what we'd let it all and withheld see heads solution that really allows us to expand and it is I sda's customer can do their innovations with locos no-code capabilities that allows them to tweak the solutions.
So that not only itself and specific problem, but they are invested in the outcome because they help solve that particular book, there's nobody understands the issues that face.
Clearly better than the customer themselves and it gives us the tools to do that without the rigmarole of the.
The full bill to over there and is of a heavy monolithic piece of software so that flexibility the private cloud enables it get if they allow older scalability and capability of it and and allows them to unlock innovation Definiens price and that's why we've seen a real type off in the and the private cloud and and.
The reason why logic and causes are able to do that interest that they've got a lot of capability and saw the company.
Okay and company.
And our next question comes from the line of metal Marcia with Morgan Stanley. Please since the question.
Hi, This is Roger.
Per meter. Thanks for the question I guess just at a higher level are you seeing customer conversations shift to more permanent solutions are deploying more permanent solutions versus maybe earlier and the pandemic conversations where are temporary setups to outfit work from home and I guess if.
You're seeing that is that impacting to see her and maybe the type of deal.
Or hybrid versus crowd owe me. Thank you.
And the Great question. Thank you I think that we're C.
Two distinct flavor system and have come from the pandemic first of all we're seeing those that are adopting solution now from a.
Multi year contract, where they started here and then and trying to figure out if they could resources that indeed.
Look at work from home and for example, and then it started to work from home I thought maybe this is going to be and 12 months and maybe it was and the 18 months now we're seeing and the same customers enter into true multiyear agreements supporting that deployment methodology. In addition, and the second motion as companies that had to decide.
And that look this is with us to stay right. This is the new way to go to work and with that they're looking at ways for us to deploy options that are again, along and different employment lines, whether that pure public from.
Or anything and between from a hybrid perspective, so we're seeing those two flavors, specifically and I think both of them lend itself to the fact that we've seen a permanent shift and the way that companies are you from at work.
Great. Thank you that's very helpful.
Our next question comes from the line of the time and merchant City interest you with your question.
Great. Thank you for the opportunity and great quarter.
And I just had a quick question lies and has been already answer and I think carrying her and you're all mentioned and professional services that help to provide and.
And better than expected and it also the second quarter, if you could kind of P and that out and as it currently and guide and the year, how much of that day and from an uptick and professional services and should we be expecting it and now that I've done right and get back hassle with that just a one time.
Taking a quarter.
Okay and <unk>.
That's exactly what I meant and my words that it was accelerating so we started from deliverables.
From unnecessary contract really being pulled forward probably to the tune of somewhere around seven or $8 million that was coming out of this year into this quarter.
And as you know, we've been macro focused and micro focused on delivering here.
S. A deal so everything we can based upon our customers request and they're they're getting people back in the office to really accelerate accelerate along so we had expected that was going to be from pretty big deliverables would be bigger than we expected and some of that came out of the second half of the year.
Okay, and then just add.
Given I think alluded to channel and best and partners and channel and that and channel partner and that meant that are started driving their EBITDA margin to around 24% how should we think about these investments going forward.
And year, where he.
Last name of these investments and then as you look ahead and you should.
Dark to see the free and deep and best and I think they're more to consider especially given that E. P.
And cast environment, and it's pretty competitive pretty fragmented and there's lots of.
Partnership and our lines and going on all the time. Thank you.
So let me start and and then maybe Steven student and jumped and just from our perspective clearly for the second half of the year, we had talked about and we gave her guidance. Initially that we were going to invest a free check and the business. This year and you can see that we've been able to do that and in fact, we are actually doing a little bit better than what we originally thought.
You ready to Precompetitive pretty competitive market and we will start to see some scaling of much of this as we start to deliver more of our public and private cloud as we go through time.
Ready to give the 2022 guidance, yet, but I do think we'll start to get some scaling benefits as we go through time, Steven that you wanted to a gym.
Absolutely show look and it gets truly we mentioned earlier and and Jim's opening comments and.
Increase the number of selling partners, but by 40% and that will continue what's also relevant.
Mix of partner and the way that day approached the market is changing right more partners are.
Now there to deliver value added services, what micro services can they lay on top of our platform and so as we see this shift to a true.
The cloud hybrid approach.
These partners are paying and increasing role and helping with key values messages to the customer.
Hi, This is Jim.
We have a.
We've been.
Very competitive.
Business model here and and we.
Have been 60 to 70 per cent of our revenues are driven through the channels. So.
To to operate within the channel structure, and United Operator to drive and profitability for the company and.
<unk> said and where.
Right on track with our guidance for for EBITDA.
And Ah.
Back into the business.
And he said one point.
We.
We have a very good relationship and.
As Kerry pointed out we and we were going to scale and as we go into.
And the quarters ahead, so long.
Very confident about our position and our ability to to remain profitable through through the <unk> through the transition from there shouldn't be an issue and I think bacterial and from there also.
They pointed out.
There was a bit of and acceleration and pf's into the quarter, but the fact is we raised our overall guidance for the year. So.
Retail as I said based upon the backlog based upon the book things increased based upon the new technology, we can deliver to the to the market.
And the solid execution from our global teams.
We.
And so we feel pretty good about what the second half of the year brings for the company.
And final question comes from the amount of harm that person was dws financial. Please proceed with your question.
Good morning, and.
Standard the your existing customers from there talking to you about moving to the cloud are they initiating that conversation me and is your face and.
Pettitte of pressures there or is your sales force channel partners and Shane.
And that conversation.
Well thank you for the question.
Absolutely or go into our customers with a cloud and first message and mentality.
And ultimately nowhere and allowing that customer to dictate what the final solution and looks like that's the benefit of being able to deploy across multiple different technologies is really the differentiators and avaya brings to the market that are competitive yourself.
Okay. Thank you.
Sure.
And what does this concludes our question and answer session and I would like to turn the call back over to Mister Michael Mccarthy closing remarks.
Thanks, and thanks for grown for joining us this morning, and we'll look forward to catching up with you over the days and weeks ahead.
And you can expect us to report the June quarter results and early morning.
We'll look forward to speaking with you have a good afternoon and stay safe.
This concludes the day teleconference, and we know disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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